Weekly Newslette - May 23 2010

After yet another rough and tough week, investors would be hoping to see some semblance of stability but things may remain quite volatile and gloomy amid continued worries over eurozone debt crisis. Macro-economic situation across the world remains murky and uncertain. So, you have anemic growth in the US fueled largely by an unprecedented fiscal-cum-monetary stimulus. On the other hand, China's economy appears to be overheated and the policymakers there are trying hard to avoid a hard landing. Japan remains in the grip of deflation and stagnant growth. The UK is witnessing low growth, with high inflation and rising budget deficit.

Back home the overall economic scenario is pretty good. Inflation seems to have cooled off a little though it remains considerably high. It will cool off if monsoon turns out to be according to initial prediction. India will also benefit if global commodities, especially oil remain under pressure. A high base effect will also play a role in containing inflation. The RBI has done a commendable role in navigating the economy through turbulent times. Interest rates are still quite low and may not rise as fast as had been feared earlier, especially if the external environment is fragile.

Earnings have been fairly good if not spectacular and the fiscal deficit is also likely to be kept under control with the 3G auction bringing a windfall for the Government. However, the disinvestment programme may suffer if the market sentiment is weak and FIIs continue to be cautious. What's more, India is also among the least affected by the European debt crisis though it will not be entirely immune to the problem.

Coming to next week's prospects, the euro-zone debt issue will continue to cast a shadow on the local bourses. The F&O expiry will only make things more volatile. No major local economic data is due next week before the GDP report is out on May 31. Notwithstanding the benign Indian outlook, one should stay away from the market to avoid the current volatility and weakness. Let the global situation calm down and stabilise a bit before taking a fresh plunge. If you can't resist the temptation buy only sound quality stuff.